Lower-Risk Funds Flourish in February

Value portfolios and those focused on defensive sectors performed well amid worries about the recovery, high valuations, and inflation

By Amey Stone

In February, stock-fund investors found that investment strategy was more important than whether you favor small-caps or large-caps. Funds with a value-oriented strategy, emphasizing stocks with low prices, far outperformed their growth-oriented peers. For example, small-cap growth funds were flat on average, while small-cap value funds climbed 2.1%. Large-cap growth funds returned 0.7%, while large-cap value funds gained 1.9%. (For complete results of more than 5,000 funds, see "BW Online's Interactive Mutual Fund Scoreboard".)

"Investors pulled back from the more aggressive styles that dominated returns over the past year," says Rosanne Pane, Standard & Poor's Mutual Fund Strategist. "Investors are now focusing on consistent earnings at attractive prices." Overall, in February the S&P 500 did just a bit better than funds. The index climbed 1.39%, while the average diversified equity fund climbed 1.31%, according to data from Standard & Poor's.


  Of the diversified stock funds, the mid-cap value category fared the best, gaining 2.52% in February. CGM Capital Development (LOMCX ) was the top performer in that group, gaining 10.1% in February. The move to mid-caps may signal that investors are becoming less aggressive, says Sam Stovall, S&P's chief investment strategist. "Mid-cap funds tend to have higher growth rates relative to large-cap funds -- but aren't as risky as small-cap funds," he notes.

Some of the best performing funds in February invested in sectors like in materials, energy, and consumer staples, as investors started to worry about the potential for inflation. The top-performing fund category was natural resources, up 5.6%. RS Global Natural Resources (RSNRX ), the best in that group, gained 8.8%. Funds that invest in emerging markets -- where a lot of raw materials come from -- were up 4.4%. Precious metals also performed well, gaining 3.3% in February.

Stovall believes a move into these defensive sectors may be premature. He expects the current economic expansion to continue and some of the best-performing stocks to be in the consumer discretionary, health care, and technology sectors.

However, for February, technology funds were the worst-performing group, dipping 1.9% as investors worried about high valuations. The 12-month return for the tech fund category is 64%. Kinetics Internet Emerging Growth (WWWEX ), which dropped 7.9% in the month, was the tech laggard. Japan funds were the only other stock fund category in the red, down just 0.5%. By Amey Stone


  Fixed-income funds returned an average of 1% in February. Long government bond funds performed the best -- gaining 1.7% -- as long-term interest rates fell a bit in the month due to some weak economic reports. Only high-yield funds, which rely on a strong economy to boost corporate results, gave negative returns, shedding -0.2%.

Overall, February was a month in which fund investors ratcheted back their risk levels and started to worry about high stock valuations and the potential for inflation -- which is virtually nonexistent in consumer prices -- to rise at some point in the future.

Funds rated A in February:ABN AMRO Mid Cap N

AIM Opportunities I A

AIM Real Estate A

AXP Precious Metals A

Aegis Value

Al Frank

Alpine Realty Income & Growth Y

Alpine US Real Estate Equity Y

Amer AAdvantage Small Cap Value Instl

Amer Century Glbl Gold Inv

Amer Century Real Estate Inv

Amer Century Sm Cap Vl Inv

Amer Century Sm Company Inv

Armada Small Cap Value I

Artisan Mid Cap

Artisan Small Cap Value

Babson Enterprise

Babson Shadow Stock

Bjurman Barry Micro Cap Growth

BlackRock International Opportunities Inv A

BlackRock US Opportunities Inv B

Boston Partners Small Cap Value II Invest

Brazos Micro Cap Y

Bridgeway Aggressive Investors 1

Bridgeway Micro Cap Limited

Bridgeway Ultra Small Company

Bridgeway Ultra Small Company Market


Buffalo Small Cap

CGM Focus

CGM Realty

CRM Small Cap Value Instl

Calamos Growth A

Cohen & Steers Special Equity

Columbia Acorn Z

Columbia Newport Greater China A

Columbia Small Cap Z


Delaware Emerging Markets A

Dreyfus Gr & Val Fds Midcap Value

Dreyfus Premier Emerging Markets A

Dreyfus Premier Greater China A

Driehaus Emerging Markets Growth

Driehaus International Discovery

Eaton Vance Emerging Mkts A

Emerald Select Banking & Finance A

Evergreen Precious Metals Holdings A

Excelsior Emerging Markets

F Russell Real Estate Securities S

FBR Small Cap Financial A

FBR Small Cap Value A

FMC Strategic Value

FMI Focus

Fidelity Canada

Fidelity Low Priced Stock

Fidelity Real Estate Investment

Fidelity Small Cap Stock

Fifth Third Micro Cap Value Instl

First American Real Estate Securities Y

First American Sm Cap Select Y

First American Small Cap Growth Opport Y

First Eagle Global A

First Eagle Gold

First Eagle Overseas A

Franklin Gold & Precious Metals A

Franklin Microcap Value

Fremont US Micro Cap

Fremont US Micro Cap Instl


GMO Emerging Countries III

Gabelli Gold

Goldman Sachs Small Cap Value A

Guardian Baillie Gifford Emerging Mkts A

Harding Loevner Emerging Markets

Heartland Select Value

Heartland Value

Heartland Value Plus

Hennessy Cornerstone Growth

Hotchkis & Wiley Mid-Cap Value I

Hotchkis & Wiley Small Cap Value I

ICM/Isabelle Small Cap Value Inv

ICON Energy

IMS Capital Value

ING Precious Metals

ING Russia A

INVESCO Energy Inv

Ivy Global Natural Res A

J Hancock Classic Value A

JPMorgan Mid Cap Value I

Janus Mid Cap Value Inv

Janus Small Cap Value Inv

Jennison Natural Resources A

Legg Mason Glbl Tr Emerging Mkts Prim

Longleaf Partners International

Lord Abbett Small Cap Value A

MFS International New Discovery A

MTB Small Cap Growth A

Managers Emerging Mkts Eqty

Matthews Asian Growth & Income

Matthews China

Matthews Korea

Matthews Pacific Tiger

Meridian Growth

Meridian Value

Merrill Lynch Global Small Cap C

Merrill Lynch Latin America B

Merrill Lynch Master Small Cap Value B

Merrill Lynch Natural Resources A

Munder Healthcare B

Munder Micro Cap Equity A

Munder Small Cap Value Y

NI Numeric Investors Emerging Growth

NI Numeric Investors Small Cap Value

Needham Growth

Neuberger Berman Genesis Inv

OCM Gold

Oakmark International Small Cap I

Oberweis Micro Cap

One Group Small Cap Value I

Oppenheimer Developing Markets A

Oppenheimer Gold & Special Minerals A

Oppenheimer Real Asset A

PIMCO RCM Biotechnology D

Pacific Capital Small Cap Y

Perkins Discovery

Perritt Micro Cap Opportunities

Phoenix-Duff & Phelps Real Estate Sec A

Quaker Aggressive Growth A

Quant Emerging Markets Ord

RS Contrarian Value

RS Global Natural Resources

RS Partners

Royce Low Priced Stock

Royce Micro-Cap Inv

Royce Opportunity Inv

Royce Pennsylvania Mutual Inv

Royce Premier

Royce Select

Royce Special Equity

Royce TrustShares Inv

SSgA Aggressive Equity

Schroder Capital US Opportunities Inv

Scudder Gold & Precious Metals S

Scudder Micro Cap Invest

Security Mid Cap Value A

Select Energy Service

Select Gold

Select Medical Systems & Equipment

Select Natural Gas

Sentinel Small Company A

State Street Research Aurora A

State Street Research Global Resources A

Strategic Partners Real Estate Securities B

Stratton Monthly Dividend REIT

Strong Advisor Small Cap Value Z

Strong Mid Cap Disciplined

T Rowe Price Intl Discovery

T Rowe Price Mid-Cap Value

T Rowe Price Real Estate

T Rowe Price Small Cap Value

TCW Galileo Opportunity I

TCW Galileo Value Opportunities I

Third Avenue Real Estate Value

Third Millennium Russia

Tocqueville Gold

Tocqueville Small Cap Value

Touchstone Emerging Growth A

Turner Micro Cap Growth

Turner Small Cap Value

US Global Accolade Eastern European

US Global Inv Global Resources

US Global Inv Gold Shares

USAA Precious Metals & Minerals

Undiscovered Managers Behavioral Vl Instl

Undiscovered Managers REIT Instl

Value Line Emerging Opportunities

Vanguard Capital Opportunity

Vanguard Energy

Vanguard Precious Metals

Wasatch Core Growth

Wasatch Micro Cap

Wasatch Small Cap Growth

Wasatch Small Cap Value

Wasatch Ultra Growth

Wells Fargo Small Cap Opportunities I

iShares MSCI Malaysia Index

Stone is a senior writer at BusinessWeek Online and covers the markets as a Street Wise columnist

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